The law reports – April 2013

April 1st, 2013
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David Matlala BProc (University of the North) LLB (Wits) LLM (UCT) LLM (Harvard) HDip Tax Law (Wits) is an adjunct professor of law at the University of Fort Hare.

February 2013 (1) The South African Law Reports (pp 323 – 646); [2013] 1 The All South African Law Reports January no 1 (pp 1 – 126) and no 2 (pp 127 – 251)

Abbreviations:

CC: Constitutional Court

KZP: KwaZulu-Natal High Court, Pietermaritzburg

SCA: Supreme Court of Appeal

Banking

Conducting the business of a bank: Section 11(1) of the Banks Act 94 of 1990 (the Act) provides that no person shall conduct the business of a bank unless such a person is a public company and is registered in terms of the Act. In Corpclo 2290 CC t/a U-Care and Another v Registrar of Banks [2013] 1 All SA 127 (SCA) the respondent, the Registrar of Banks, was granted an interdict prohibiting the first appellant, Corpclo, from conducting the business of a bank contrary to s 11(1) of the Act.

In the court a quo Booysens AJ held that the activities of the first appellant, a close corporation (ie, not a public company), which was not registered as a bank in terms of the Act, amounted to conducting the business of a bank in that the latter was collecting funds from members of the public that it deposited into its account with a commercial bank and thereafter paid 60% of the money back to the depositor/contributor as commissions and/or bonuses; 20% to the second appellant, the management company, as ‘administrative expenses’; and the remaining 20% as donations to charity. Because of the donation of 20% of the money to charity, the first appellant contended that it was not conducting the business of a bank but was instead conducting a charity-funding business that provided a service to both donors (participants in the scheme) and charities. However, no information was forthcoming on the details of the alleged charities, the amounts paid to them and the time of such payment. An appeal to the SCA was dismissed with costs.

Southwood AJA (Mpati P, Leach, Lewis and Malan JJA concurring) held that s 11(1) clearly prohibited any person other than a public company registered as a bank in terms of the Act, from conducting the business of a bank, which business included the ‘business practice’, as defined in GN 498 published by the respondent in GG17895/27-3-1997, to include the acceptance or obtaining of money, directly or indirectly, from members of the public, as a regular feature of a business practice, with the prospect of such members receiving payments or other money-related benefits, directly or indirectly, on or after the introduction of other members of the public to the business practice. Moreover, s 81 of the Act provided that the respondent could take action if he had reason to suspect that any person who was not registered as a bank in terms of the Act was likely to conduct the business of a bank in contravention of the provisions of s 11(1) or that a contravention was likely to be continued or repeated. The instant case was therefore one of ‘clear and straightforward’ prohibition of defined conduct, as well as clear and straightforward provisions auth­orising the respondent’s action.

Civil procedure

Discretion to allow a claim to stand notwithstanding a special plea of res judicata: Although there were four plaintiffs and defendants in NSC Carriers & Forwarding CC and Others v Hyprop Investments Ltd and Others 2013 (1) SA 340 (GSJ) the main parties were NSC, the plaintiff, and Hyprop, the defendant. In 2008 Hyprop, as the lessor, entered into two identical lease agreements with NSC, as the lessee, for commercial premises in a shopping centre. NSC took occupation but shortly thereafter ceased to pay rent and related charges because of certain allegedly fraudulent misrepresentations by the lessor. As a result, Hyprop cancelled the leases and sought a High Court order confirming cancellation and evicting NSC. The application was contested on the basis of the alleged fraudulent misrepresentations.

Mokgoathleng J held that NSC had elected to abide by the leases fully aware of the shortcomings of the shopping centre; thus ruling out any fraudulent misrepresentations, as alleged. Leave to appeal was denied by both the court a quo and the SCA.

In the present action NSC claimed damages from Hyprop for alleged fraudulent misrepresentations, the action being delictual and not contractual. The defendant raised four special pleas to the claim, including non-joinder of other parties and a stay of proceedings. For present purposes, the discussion is confined to the special plea of res judicata, a variation of which is issue estoppel. It was the defendant’s case that the issue of fraudulent misrepresentation had already been adjudicated between the parties in the eviction application, where it was resolved in its favour.

Sutherland J held that the issue of fraudulent misrepresentation had indeed been decided by Mokgoathleng J in the eviction application, as the very complaints put up in that application were about the same subject matter relied on in the instant action, which was incontrovertible. What remained, however, was whether or not it was appropriate in the exercise of a judicial discretion, which the court had, to order that the claim be allowed to stand or the special plea be upheld. The prospect of unsuiting a party in application proceedings was distinct from doing so where there was a trial. There was a risk that, in a trial where discovery and cross-examination could conceivably yield, a different outcome could result.

A substantial factor for not unsuiting a litigant on the basis of issue estoppel in the instant case was the fact that the second case was going to be a trial rather than application proceedings and therefore had the potential to produce a different result. The court noted that it should never be overlooked that a finding in application proceedings was always fundamentally vulnerable for that reason. Thus it was open to the court to exercise its discretion not to dismiss the claim on the ground of res judicata. Finding these considerations compelling, the court dismissed the special plea of res judicata but nevertheless emphasised that it was not thereby laying down a principle that whenever there was a trial that was to follow an application, regardless of other considerations, a res judicata plea would always be trumped. The costs were ordered to be costs in the cause at the trial.

Companies

Effect of cancellation of deregistration of a company: In Fintech (Pty) Ltd v Awake Solutions (Pty) Ltd and Others 2013 (1) SA 570 (GSJ) the first respondent company, Awake Solutions, was deregistered in March 2008 by the Registrar of Companies in terms of the Companies Act 61 of 1973 (the 1973 Act) for failure to file annual financial returns. Unaware of the deregistration, the company continued business as usual and was also at the receiving end of certain steps, including being placed in provisional liquidation in April 2008, as a result of which provisional liquidators were appointed. This order was set aside by Makume J in application proceedings in October 2012 and the company was discharged from liquidation. In March 2011 the company instituted proceedings to recover certain amounts from the applicant, Fintech, and another company in respect of which negotiations were held, the claims settled and payment was made by Fintech to the company. In August 2011 the company filed notice to amend the prayers sought in the application proceedings to amend the amount claimed. The amendment was opposed by Fintech but Maluleke J granted judgment with costs in favour of the company. When it became known that the company had been deregistered, its sole shareholder and director, Walker, applied for its reinstatement in terms of the Companies Act 71 of 2008 (the 2008 Act).

The Companies and Intellectual Property Commission (the commission) ‘cancelled’ deregistration of the company in April 2012.

In the present application Fintech sought an order nullifying, alternatively setting aside, the orders of Makume J and Maluleke J and declaring that all the activities by and against the company during its deregistration period should be nullified and payment made by it to the company during that time be returned as the company was, by virtue of deregistration, not a legal person but a non-existing entity.

The application was dismissed with costs. Van Oosten J granted an order declaring that all acts done by or against the company from the date of its deregistration until the date of its reinstatement were valid and of full force and effect. It was held that there was a difference between ‘reinstatement of registration’ by the commission, which could be done in terms of s 82(4) of the 2008 Act read with reg 40(6) of the Companies Regulations, 2011 and ‘cancellation of deregistration’, which took place in the instant case. The difference between the two concepts was that cancellation of the process meant an elimination of the entire process, including the initial deregistration, as if it had never occurred, whereas reinstatement implied putting the company back in its position prior to deregistration. That had the effect that, by cancellation of deregistration, the company at all times remained a corporate entity. Unlike the 1973 Act, which expressly provided for retrospectivity on reinstatement of registration of the company, the 2008 Act did not do so. However, there was no reason why the court should not be able to exercise its inherent jurisdiction in view of the absence of enabling statutory provisions under the 2008 Act, on application or otherwise, to validate anything done by or against the affected company between deregistration and reinstatement and to make such order it considered appropriate.

Furnishing copy of winding-up application to SARS: Section 346(4A)(a)(iii) and (b) of the repealed Companies Act 61 of 1973 (the Act) provided, among others, that when an application was presented to court for the winding-up of a company, the applicant had to furnish a copy of the application to the South African Revenue Service (SARS), accompanied by an affidavit deposed to by the person who furnished a copy of the application to SARS. In Corporate Money Managers (Pty) Ltd and Others v Panamo Properties 49 (Pty) Ltd 2013 (1) SA 522 (GNP) the respondent, Panamo Properties, was placed under voluntary winding-up. Thereafter Murphy J granted an order placing the respondent under provisional compulsory winding-up. On the return day of the rule nisi the applicant creditor, Corporate Money Ma­na­gers, sought an order setting aside the voluntary winding-up order and another placing the company under final winding-up. The application was dismissed with costs.

Van Loggerenberg AJ held that the furnishing of a copy of an application for the winding-up of a company to SARS at the time when the application was lodged with the registrar of the court, and not when the application was heard, was peremptory. Proof of such furnishing by means of an affidavit was also peremptory. Since that had not been done in the instant case, the voluntary winding-up of the company could not be set aside and the provisional winding-up order could not be made final.

Reasonable prospect of re­­scue required: In Propspec In­­vestments (Pty) Ltd v Pacific Coast Investments 97 Ltd and Another 2013 (1) SA 542 (FB) a creditor, Propspec Investments, applied for an order placing the first respondent, Pacific Coast (the company), under supervision and commencing rescue proceedings. The application was opposed by one of the creditors. The company in question owed its creditors just under R 94 million, while it had some R 40 000 in its savings accounts. It also owned land that had been developed into residential units to be sold, after which it would remain with nothing as the proceeds of such sales were to be used to pay its debts. As a result, after completion of the business rescue plan, the company would remain without funds or assets. Moreover, it had no employees.

Van der Merwe J held that, since the applicant’s case was that the company’s property was going to be sold, either as a whole or by individual erven, there was no practical prospect of the company continuing to exist on a solvent basis. Further, the applicant could not show a reasonable prospect of a better return than would be the case in liquidation. Accordingly, the application was dismissed with costs.

The court held that the phrase ‘reasonable prospect’ for rescuing the company, as used in s 131(4)(a) of the Companies Act 71 of 2008 (the Act) indicated something less than a ‘reasonable probability’, as was required for placing a company under judicial management in terms of s 427(1) of the repealed Companies Act 61 of 1973. Judicial management under the repealed Act failed mainly because of the high threshold of proof required. A prospect in the present context meant an expectation, which could come true in some instances or not materialise in others. Therefore, a prospect signified a possibility. A possibility was reasonable if it rested on a ground that was objectively ascertainable. There was thus no doubt that in order to succeed in an application for business rescue, the applicant had to place before the court a factual foundation for the existence of a reasonable prospect that the desired object could be achieved. Vague averments and mere speculative suggestions would not suffice in this regard.

Delict

Unlawful interference with contractual relationship: In Makulu Plastics & Packaging CC v Born Free Investments 128 (Pty) Ltd and Others 2013 (1) SA 377 (GSJ) the appellant, Makulu Plastics, had an oral and an unsigned written contract of lease with the first respondent, Born Free, in terms of which it leased the latter’s premises. The lease was concluded after the previous lessee went into liquidation. The former lessee had a consumer contract with the third respondent municipality, Ekurhuleni Metropolitan Municipality, for the supply of electricity, water, sanitary and refuse removal services. After a commercial dispute arose between the appellant and the first respondent, the latter requested the municipality to stop the supply of services to the leased property and to never enter into a consumer contract with anybody in illegal occupation of the property. The first respondent did not mention that it had a contract of lease with the appellant, which was in occupation of the property.

The municipality, having terminated the supply of services to the property, refused to enter into a consumer contract with the appellant and therefore did not resume the supply of the services. As a result, the appellant approached the High Court for a number of orders, including interdicting and restraining the first respondent from –

  • preventing it from entering into a consumer agreement with the municipality for the supply of the services;
  • requesting or encouraging the municipality to terminate the supply of services; and
  • hindering or obstructing the appellant and its employees’ access to and use or enjoyment of the property.

It also sought an order directing the municipality to conclude a consumer contract with it for the supply of services.

A single judge of the High Court dismissed the application, holding that the relief sought was not competent as there was nothing that the first respondent, as a lessor of the property, could do to prevent the municipality from entering into a consumer contract if it chose to do so. An appeal to the full Bench was upheld with costs.

Lamont J (Tsoka and Francis JJ concurring) held that the act of the first respondent in notifying the municipality that the leased property was occupied by a person with whom it had no contractual relationship, if such contractual relationship indeed existed, would constitute an interference by the first respondent in the contractual relationship between the appellant and the municipality. The fact that no contract existed between the appellant and the municipality in the instant case did not change the position. Such contract would inevitably have been concluded but for the interference. In terms of the lease agreement, the first respondent was, by necessary implication, at the very least to have cooperated with the appellant, which sought the services agreement with the municipality. It was apparent that the municipality, in consequence of the interference by the first respondent, declined to conclude a contract with the appellant. The conduct of the first respondent in performing acts designed to frustrate the free commercial activity of the appellant constituted a wrongful act.

Note: Another reported case dealing with unlawful interference with the contractual relationship of another person is Uniplate Group (Pty) Ltd v New Number Plate Requisites CC [2013] 1 All SA 231 (GSJ).

Estate agents

Contract concluded by estate agent without Fidelity Fund certificate null and void ab initio: In Enelon CC t/a Realnet Wilgers & Surrounds v Nortje and Another 2013 (1) SA 525 (GNP) the applicant, Enelon, was a close corporation registered as an estate agent. Its sole member, Schutte, was also registered as an estate agent. In 2010 the applicant concluded a contract of employment with the first respondent, Nortje, and the second respondent, both being employed as estate agents. Shortly after their employment, the respondents entered into a restraint of trade agreement in terms of which they undertook not to compete with the applicant in the estate agency industry within a radius of 5 km for a period of 12 months after termination of their employment. A year later the respondents left the employ of the applicant and joined its rival. As a result, the applicant sought a court order restraining the respondents from acting in breach of the restraint of trade agreement.

Legodi J dismissed the application with costs for two reasons. First, at the time of concluding the restraint of trade agreement, and for the rest of that year, none of the parties – being the applicant, its sole member, as well as the respondents – had a Fidelity Fund certificate as required by s 26 of the Estate Agency Affairs Act 112 of 1976 (the Act). The restraint of trade agreement was so tainted that it was null and void from the start. One would expect the applicant to have waited for the issue of the Fidelity Fund certificate to be resolved before entering into the restraint of trade agreement or to ensure that it was obtained immediately thereafter, not only for itself but also for the respondents. Secondly, the application also fell to be dismissed on the non-joinder issue in that the respondents’ new employer, who had a material interest in the proceedings, was not cited as a party.

Income tax

Ringfencing of capital expenditure in mining operations: The deduction of mining capital expenditure is governed by s 36(7E) and (7F) of the Income Tax Act 58 of 1962 (the Act). Very briefly, s 36(7E) deals with overall ringfencing and provides that the aggregate of the amounts of capital expenditure (capex) in respect of any year of assessment in relation to any mine or mines shall not exceed the taxable income derived by the taxpayer from mining. Any amount of such excess shall be carried forward to the next succeeding year of assessment in respect of the mine or mines to which such capital expenditure relates.

Unlike s 36(7E), which deals with all the mines operated by the taxpayer, s 36(7F) deals with a specific mine and provides that the aggregate of the amounts of capital expenditure in respect of any year of assessment in relation to any one mine shall not, unless the Minister of Finance directs otherwise, exceed the taxable income derived by the taxpayer from mining on that mine. Any amount in excess of such taxable income shall be carried forward to the next succeeding year of assessment in respect of that mine.

The application of these sections arose in Armgold/Harmony Freegold Joint Venture (Pty) Ltd v Commissioner, South African Revenue Service 2013 (1) SA 353 (SCA). The appellant, Armgold, owned and operated three gold mines, being Freegold, Joel and St Helena. For the tax years 2003 and 2004 Freegold and Joel had taxable income while St Helena made a loss. For those tax years the respondent, the South African Revenue Service (SARS), set off the losses of St Helena against the taxable income of the Freegold and Joel mines before taking into account the mining capital expenditure incurred in respect of those mines. The effect of such set-off was to reduce the amount of capital expenditure that could be redeemed in respect of the Freegold and Joel mines. The appellant’s objection was rejected by the respondent and an appeal to the Tax Court in Johannesburg was dismissed. A further appeal to the SCA was dismissed with costs, albeit for different reasons.

Leach JA (Navsa, Cloete, Heher and Pillay JJA concurring) held that the mining activities conducted by the appellant at each of its three mines could not be said to be a separate ‘trade’ from the trade conducted at other mines. This was so as the definition of ‘trade’ in s 1 of the Act was very wide and included ‘every profession, trade, business, employment, calling, occupation or venture’. A company that carried on mining operations certainly carried on the ‘trade’ of mining and it would be ‘both fanciful and artificial’ to regard the mining operations of the appellant at the St Helena mine as being different trade from the operations it conducted at its other mines. Had the legislature intended each mine’s operations to be regarded as a separate trade, it could easily have said so. Not only did it not do so, but the provisions of s 36(7E), in which reference is made to the aggregate of the amounts of capital expenditure in relation to the mine or mines, clearly exclude different mining operations being regarded as different trades. The amount to be determined under s 36(7E) was the taxable income to the appellant’s mining operations from all its mines, and in determining that amount the gross incomes and the operating expenses of all three mines had to be taken into account. The taxable income of a taxpayer is, after all, determined by deducting operating expenses from gross income, and St Helena’s loss could not, therefore, be left out of reckoning. Accordingly, the appellant’s argument based on the necessity to regard its operations at its different mines as different trades had to fail.

Nevertheless, the court no­ted that much of the appellant’s criticism of SARS’ method of assessment had merit. Section 36(7F) envisaged the capex deduction of each mine to be determined by having regard to the taxable income derived from that mine, an objective that would be defeated if the operating expenses incurred at one mine were to be taken into account in respect of another. Section 36(7C) provides for the amount to be deducted under s 15(a) to be the capital expenditure on a particular mine, determined by the income derived from working that mine. ‘Violence’ would be done to that principle if the operating expenses of one mine were set off against the income of another, which was impermissible.

Local government

Duty of municipality to com­ply with court order: In Mchunu and Others v Executive Mayor, eThekwini Municipality and Others 2013 (1) SA 555 (KZD) the applicants, Mchunu and others, were residents of an informal settlement in the area of jurisdiction of the eThekwini Municipality. The Member of the Executive Council for Transport in KwaZulu-Natal obtained a High Court order for their eviction from the informal settlement. The court order provided that the applicants were to remain in a transit camp for a period not exceeding 12 months, after which they were to be relocated to a low-cost housing project.

However, some 22 months after the granting of the court order they were still living in unsafe and unhygienic conditions in the transit camp as a result of misallocation of housing in the low-cost housing project. The applicants therefore approached the High Court for an order declaring that functionaries of the municipality, being the executive mayor, municipal manager and director of housing, were constitutionally and statutorily obliged to take all necessary steps to ensure that the municipality complied with the terms of the court order within a specified time, failing which, an application would be made to hold them in contempt of court. The application was gra­nted with costs.

Hollis AJ held that all court orders, whether correctly or incorrectly granted, had to be obeyed until they were properly set aside. In terms of s 165(5) of the Constitution, a court order bound a municipality as an organ of state to adhere to it. The state had to lead by example in its conduct. In the instant case, while it was correct that the officials of the municipality had failed to comply with the terms of the court order, it could not however be said that they ignored the court order wilfully, even though their effort to comply with the order had fallen far short of what should have been done.

Spoliation order

Impossibility to order restoration of possession: In Schubart Park Residents’ Association and Others v City of Tshwane Metropolitan Municipality and Another 2013 (1) SA 323 (CC) the first respondent, the City of Tshwane Metropolitan Municipality, was the owner of four blocks of a residential complex known as Schubart Park. Complaining about the living conditions in the complex and the termination of water and electricity supply, the residents embarked on a violent protest, which included burning tyres, starting fires and throwing stones and other objects at vehicles and the police. As a result, the municipality secured the services of the police to remove the residents from the complex and prevent their re-entry.

The residents applied for an urgent order authorising their return to the complex, as well as restoration of the water and electricity supply. The application was dismissed as the court found that, because of the prevailing violent conditions, it was not safe to order the residents to return to the complex. Nevertheless, the court ordered the parties to enter into negotiations in order to solve the problem.

The order also provided that any resident of the complex who accepted the tender made by the municipality would have that tender serve as a court order.

Leave to appeal against the order was denied by both the High Court and the SCA. As a result, the residents approached the CC for leave to appeal.

Such leave was granted, the appeal was upheld with costs and the High Court orders set aside. The court declared that the dismissal of the residents’ application by the High Court did not have the effect of evicting them. They were therefore entitled to return to the complex as soon as reasonably possible and, further, that the parties were to meaningfully engage to give effect to the declaratory order.

Delivering a unanimous decision of the court, Froneman J held that the spoliation order did not determine the lawfulness of competing claims to the relevant object or property. For this reason, there were only a limited number of defences available to a spoliation claim under the common law, impossibility of restoration being one of them. It was conducive to clarity to retain the ‘possessory focus’ of the remedy of spoliation and keep it from constitutional ‘appropriate relief’ contained in s 38 of the Constitution. That was because the order made in relation to factual possession in spoliation proceedings did not in itself directly determine constitutional rights, but merely set the scene for a possible return to the status quo in order for the subsequent determination of such rights in relation to the property. Therefore, spoliation proceedings – whether they resulted in restoration or not – should not serve as the judicial foundation for permanent dispossession, namely eviction in terms of s 26(3) of the Constitution.

Neither the dismissal order granted by the High Court nor the subsequent tender order could serve as justification for the eviction of the residents from their homes for the purposes of s 26(3) of the Constitution. Where urgency dictated that immediate restoration should not be ordered, it had to be made clear, preferably by a declaratory order to that effect, that the refusal to order reoccupation did not purport to lay the foundation for a lawful eviction under s 26(3) of the Constitution. The order had to be temporary and subject to revision by the court. In the instant case the situation was such that the High Court could not order immediate restoration. However, as a matter of law, it could and should have issued a declaratory order indicating the residents’ eventual entitlement to restoration.

Other cases

Apart from the cases and material referred to above, the material under review also contained cases dealing with the admission policy of a public school; allowance and benefits for employees; amendment of parenting plan; appointment of judges; calculation of permanent pension disability benefits; concurrence of remedies in delict and contract; consumer credit agreement; eviction of unlawful occupiers; external company not being South African resident; filing of further affidavits at discretion of court; imposition of municipal rates on residential and non-residential properties; mora debitoris; power of Judge President to make rules relating to placing applications on the roll; power of licensee to enter upon land, construct and maintain telephone base mast; proceedings on behalf of a company in liquidation; property held in statutory trust being state property; prosecution of a child under 16 years of age; refusal to order property executable; transformation of fishing industry; subdivision of agricultural land; special notarial bond over immovable property; use of official languages by government; and winding-up of a company on just and equitable ground.

This article was first published in De Rebus in 2013 (April) DR 52.